The laws of economics show why the United States has little chance of victory in the war on drugs.

By Peter PassellPeter Passell, the Economics Editor of Democracy Lab, is a Senior Fellow at the Milken Institute.

March 22, 2012

The real headline in The New York Times was more measured: "U.S. Remains Opposed to Drug Legalization, Biden Tells Region." But the story, juxtaposing Washington’s intransigence with the desperation of Latin American leaders sucked into a war with the drug cartels they aren’t winning, was a sobering reminder of the parochialism of U.S. drug policy and its impact on other countries.

Vice President Joe Biden, who did manage to couch his brush-off of Latin American concerns in diplomatic language, is certainly right that legalization would be no panacea. What no U.S. politician seems willing to acknowledge, though, is that supply-side fixes to drug abuse have been disastrous to the economies and civil societies of supplying countries because they make the illicit drug business irresistibly profitable. The big question is not whether, but when, Latin Americans will have the temerity to challenge the United States’ malign neglect.

A brief detour for some basic economics. If the sole goal of drug policy is to reduce consumption, one can get from here to there either by restricting supply or by convincing users to forego the experience. Both approaches can, in theory, get the job done — to a point. But there is one (well, more than one, but let’s keep this simple) big difference between them: Restricting supply raises prices, while reducing demand lowers prices.

Now, suppression of supply — which, by treaty, the United States and most other countries strive for — need not raise the profitability of producing and selling drugs, provided the restrictions also substantially raise the drug dealer’s expenses. For example, the imposition of the death penalty for drug trafficking in a country with an efficient, honest police force (like Singapore) might be expected to raise the expected "cost" of trafficking so much that few people would consider it profitable.

But this apparently isn’t the case in the United States, the globe’s premier consuming country for most drugs (hard and soft) — or for the major producing and entrepôt countries that supply the United States, Asia and Europe. Indeed, the illicit drug trade is so profitable in these places that it has given organized crime the power to undermine civil society in supplying countries.

Colombia, of course, was once the poster country for the collateral damage caused by the effort to suppress drugs. Having fed organized crime and related political terrorism there for decades, the production of cocaine was finally brought under control by a U.S.-supported military effort that cost thousands of lives and did significant harm to Colombia’s legal economy that will take years to overcome. But wars on drug suppliers aren’t won – they just move around.

Mexico’s drug cartels have largely filled the gap left by the success of supply suppression in Columbia. Indeed, according to the U.S. Department of Justice, Mexican gangs have also sharply increased production and distribution of heroin, methamphetamine and marijuana, as Asian, South American and Caribbean suppliers (as well as U.S. producers of meth and marijuana) have withered under government heat. That explains why consumption of all illicit drugs, with the possible exception of cocaine, is still on the rise in the United States. And why drug gangs have been able to undermine the quality of life in Mexico along its border with the United States. Some 50,000 people have reportedly died in drug violence in Mexico in the past six years.

The fluid nature of the drug trade is generating one especially poignant casualty: Costa Rica. This tiny country, celebrated for having no army (and no wars since 1948), had largely escaped the civil wars and horrendous street crime that have dogged the rest of Central America in recent years. But the drug cartels’ new use of Costa Rica as a drug entrepôt has sharply increased violent crime there, forcing the government to beef up its police force.

Until recently, there was little opposition to U.S. drug policy in Latin America except in a few countries — notably, Bolivia and Venezuela. But the cumulative devastation that supply-side remedies have caused, and perhaps the end of the pragmatic imperative to stand with the United States in opposition to leftist regimes, is changing the political calculus. In 2009 three former Latin American leaders, Fernando Henrique Cardoso of Brazil, Ernesto Zedillo of Mexico and César Gaviria of Colombia, chaired a commission calling for a paradigm shift, a fresh start on drug policy focusing on demand-side treatment.

Mexico and Argentina have since decriminalized possession of marijuana for personal use. And Mexican President Felipe Calderón has indicated a willingness to go further, mentioning "market alternatives" for hard drugs — a euphemism for legalization.

Then in February, Guatemalan President Otto Perez, caught between his army’s inclination to take no prisoners in its attack on the drug trade and Washington’s critique of his human rights record, came out in favor of legalization. And days before Biden’s trip south, Costa Rican President Laura Chinchilla echoed the sentiment. "If we keep doing what we have been … we’ll never get anywhere and could wind up like Mexico or Colombia," she lamented.

Going into the U.S. presidential election season, Biden’s message to Latin America was inevitable: The Obama administration isn’t about to pick a fight with suburban swing voters more worried about the temptations facing their teenage children than the carnage in Mexico.

Besides, the only thing clear about the Obama administration’s view on drugs is its ambivalence. The president’s "drug czar," Gil Kerlikowske, who had earlier served as Seattle’s chief of police, favors a tilt toward demand-side treatment, tacitly (very tacitly) implying that the current supply-side drug policy is a disaster in slow motion. But the Justice Department has warned that federal laws against marijuana sale pre-empt state laws, leading a few hundred California medical marijuana dispensaries to close down. And in any event, budget-strapped, Tea Party-haunted Washington is in no mood to coddle drug addicts.

But this isn’t 1933, when the Marines installed Anastasio Samoza (and FDR allegedly explained, "He may be a son of a bitch, but he’s our son of a bitch") as dictator in Nicaragua. Or even 1989, when George H.W. Bush invaded Panama to arrest Manuel Noriega for drug trafficking. Latin American leaders pressing for changes in drug policy may not get much sympathy from Washington. But Washington may not be able to prevent the disengagement of Latin America from the war on drugs, especially if larger countries like Mexico, Brazil and Argentina take the lead.

This isn’t an airy-fairy issue of principle: Like its counterpart in the United States, the Latin American middle class associates hard drugs with crime and poverty and fears the potential consequences of decriminalizing them. But in Latin America, unlike the United States, the dangers of ongoing confrontation with well-financed, well-organized and very violent gangs also resonate.

The pushback to the vice president’s affirmation of current U.S. policy isn’t likely to translate into the aforementioned "paradigm shift" anytime soon. But it does signal that the interests of Latin American leaders are diverging from those of U.S. politicians who see less risk in policy-as-usual than in challenging the premises of the supply-side approach. And as Herb Stein, Richard Nixon’s economic advisor, once put it, "If something cannot go on forever, it will stop."

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James TraubJames Traub is a fellow of the Center on International Cooperation. "Terms of Engagement," his column for ForeignPolicy.com, runs weekly. Follow his Twitter feed at @JamesTraub1 or his presidential alter ego at jqaspeaks.tumblr.com. | Terms of Engagement |